Home

Global

Contact

de|en|pl

50 countries – 116 offices – around 6,000 colleagues – 1 firm |

Worldwide

We use cookies to personalise the website and offer you the greatest added value. They are, among other purposes, used to analyse visitor usage in order to improve the website for you. By using this website, you agree to their use. Further information can be found in our data privacy statement.

Proforma invoice vs. advance and final invoice

by Beata Borowska and Katarzyna Zymon

17 February 2025

Several types of invoices are used in business transactions. The most popular are proforma invoice, advance invoice and final invoice. What are the differences between these documents? When to use them?

TABLE OF CONTENTS

What is a proforma invoice?
Why and when to use proforma invoices?
Proforma invoice vs. advance invoice
Proforma invoice vs. final invoice
Proforma invoice and VAT – what does the Ministry of Finance say?
Proforma invoice vs. advance invoice: which one to choose?
Summary
Trust the experts

What is a proforma invoice?

A proforma invoice, despite its name, is not an accounting document – it is used as a sales proposal or information about the total cost of a product or service. Proforma invoices are not mandatory, but businesses often use them in their dealings. However, a proforma invoice does not release the seller from the obligation to issue a proper invoice after the transaction has taken place.

A proforma invoice does not document a sale; it serves as a sales proposal at the transaction stage. It is not included in the books of account, nor does it trigger tax liability. A proforma invoice does not oblige the recipient to pay the amount due and therefore the enterprise cannot pursue its claims on its basis.

A proforma invoice can look the same as a proper invoice, except that the heading should indicate that it is a proforma invoice. This indication is crucial on the document.

Why and when to use proforma invoices?

A proforma invoice is often used as a business proposal or for information purposes. It presents the value of the transaction to the customer interested in the proposal and can also be used as a reminder of the payment deadline. If the customer fails to pay, the issuer of the proforma invoice does not have to take any action – it is not obliged to supply the goods or services, or to issue a correcting invoice.

The law does not specify the exact point at which a proforma invoice should be issued. In practice, however, it is issued before the payment is made by the buyer of the goods or services. After that, only a proper invoice can be issued.

Proforma invoice vs. advance invoice

Unlike a proforma invoice, an advance invoice is disclosed in the books of account and triggers tax liability – but only for VAT purposes. The receipt of a payment towards the supply of goods or services that is a sort of advance payment (i.e. it is not definitive and final, and is refundable under certain conditions) generally does not make corporate income tax chargeable under the CIT Act because revenues do not include payments collected or receivables recognised on account of supplies of goods and services which are going to be made in future reporting periods.

An advance invoice should be issued whenever a part of the payment for goods or services has been received. However, there are exceptions to this rule set out in the VAT Act.

An advance invoice need not be issued when the payment is for, among other things:

an intra-Community supply of goods;
supply and distribution of electricity, thermal, cooling energy and the mains gas,
telecommunications or radio communications services,
services relating to the treatment or supply of water through water supply systems,
rental, lease or similar services,
bodyguarding services, security, guarding and storage of property,
regular legal or office services.

In addition (with a few exceptions), there is no obligation to issue an advance invoice if the whole or part of the payment is received in the same month as the goods or services for which the payment is made. However, in this situation, the final invoice should show the date of receiving the payment, if different from the invoice date.

Also, if you are dealing with an enterprise exempt from VAT, you should not expect an advance invoice. The receipt of an advance payment triggers consequences only with respect to value added tax. Businesses that are not VAT payers simply do not issue advance invoices.

An advance invoice must be issued by the 15th day of the month following the month in which the whole or a part of the payment is received. If the buyer makes several advance payments before the goods or services are supplied, an advance invoice must be issued for each of them.

According to the VAT Act, an advance invoice must include following information:

invoice date;
the consecutive number assigned within one or more series, which allows clear identification of the invoice;
the full names or business names and addresses of the taxpayer and the recipient of goods or services;
the tax identification number NIP of the taxpayer and the buyer;
the date of supply or completion of supply of goods or services or payment receipt date if such a date is known and differs from the invoice date;
the payment received,
the tax amount calculated using the following formula:

tax amount = (value of advance payment received x tax rate) / (100 + tax rate)

details of the order or contract, especially the name (type) of goods or services; net unit price, quantity of the goods ordered; net value of the goods or services ordered, tax rate, tax amount and gross value of the goods or services.

It is therefore not enough to briefly indicate in such an invoice that it is an "advance payment for an order dated ...".

Proforma invoice vs. final invoice

The final invoice, which reflects the actual final amount of the transaction, is issued after the goods or services are supplied – as opposed to the proforma invoice, which is issued before the buyer pays and which may indicate just preliminary, estimated amounts.

As mentioned above – if the advance payment(s) is(are) received in the same month in which the sale takes place, a final invoice may be issued straight away, without having to issue advance invoices for the payments received in the same month.

A final invoice thus serves as the final settlement of the transaction if the advance invoice is not issued for the full payment amount. To this end, the value of the entire sales transaction, including the amount of tax, should be reduced by the amounts previously paid and documented by advance invoices, also indicating their numbers.

Proforma invoice and VAT – what does the Ministry of Finance say?

The Minister of Finance cleared any doubts about the interdependencies between the proforma invoice and VAT invoice in in his explanatory notes:

A document called a proforma invoice is not an accounting document (...). Such a document has no consequences in terms of VAT, i.e. an obligation to pay the tax shown therein, and does not entitle the buyer to deduct the VAT shown therein.

Proforma invoice vs. advance invoice: which one to choose?

To answer this question, you need to consider the current stage of your transaction and what exactly it should document.

If the goal is to make a sales proposal, to confirm a proposal or to accept an order – use a proforma invoice.

If you have received an advance or prepayment, even though a physical sale has not yet taken place, but the proposal can already generally be said to have been accepted – issue an advance invoice.

We may speak of the freedom to choose one of these documents only before the advance payment is received, as it is permissible to issue an advance invoice up to 60 days before the payment is received. In such a case, if you opt to issue both a proforma invoice and an advance invoice – their issuance will not affect VAT liability. Also, neither of those documents give the buyer the right to deduct input VAT – a taxpayer who has received an advance invoice but has not yet paid the advance has no right to deduct the input tax indicated in such an invoice.

In my opinion, a lot depends on the actual stage of arrangements with the business partner – if you can, with a high degree of probability, assume that you will receive an advance payment for the supply of goods or services in the near future – you can issue an advance invoice.

If, on the other hand, at a given stage of the arrangements with the customer you cannot predict whether the customer will accept the proposal and thus whether payment will be made – a better solution is to first issue a proforma invoice and only later issue an advance invoice for the fulfilment of the order once you receive the payment.

Summary

The proforma invoice, the advance invoice and the final invoice are three different documents used in business transactions.

A proforma invoice serves information and proposal-related purposes and triggers no accounting or tax consequences. It is used before the payment is made and its issuance does not oblige the customer to pay.

Unlike a proforma invoice, an advance invoice should document a receipt of a part of the payment and usually triggers VAT liability. It must be issued whenever an advance payment has been received, unless the transaction falls under an exception indicated by law.

The final invoice is issued after the goods or services have been supplied and includes information on previous advance invoices, if any. The choice between a proforma and an advance invoice depends on the stage of the transaction – if you are just presenting a proposal, it is better to use a proforma invoice, whereas if you have received an advance payment, you have to issue an advance invoice. Please remember that a proforma invoice does not trigger tax liability, and an advance invoice can be issued even before the payment is received.

Trust the experts

Outsourcing accounting is a solution that enterprises of all sizes are keen to use.. At Rödl & Partner, we offer a full range of accounting services tailored to the needs of your business. By outsourcing your bookkeeping into the hands of experts, you will cut costs and protect yourself from accounting errors. Contact us »